The lean journey
The quest for efficiency in the manufacturing industry
March 2004
An Oracle white paper
Written in cooperation with the Economist Intelligence Unit
About this white paper
This Oracle white paper was written in cooperation with the Economist Intelligence
Unit. The Economist Intelligence Unit wrote an initial draft of the white paper based
on a survey of senior executives in the manufacturing industry, input from Oracle
executives and interviews with business leaders and experts on industrial
manufacturing. Feedback from Oracle was included in a revised, final draft.
About Oracle
Oracle is the world’s largest enterprise software company. Its product line includes
enterprise business solutions that extend support for Lean methods to all facets of
internal operations and business interactions with supply-chain partners. For more
information, visit our website at www.oracle.com.
About the Economist Intelligence Unit
The Economist Intelligence Unit is the business information arm of The Economist
Group, publisher of The Economist. It is the world’s leading provider of country
intelligence, with over 500,000 customers in corporations, banks, universities and
government institutions. Our mission is to help companies do better business by
providing timely, reliable and impartial analysis on market trends and business
strategies. For more information, visit our website at www.eiu.com.
The lean
journey
The quest for efficiency
in the manufacturing
industry
Lean manufacturing, supplemented mere jargon or consultancy buzzwords.
by Six Sigma principles, can help “The western hemisphere is full of
companies attain the goal of continuous program-of-the-month syndrome,”
improvement—but only when embraced says Anand Sharma, president and CEO
as a core corporate philosophy of TBM Consulting Group, a US firm
that helps companies adopt Lean and
Management slogans often boil Six Sigma principles. “It’s more
down to little more than platitudes in fashionable today to talk about ‘lean’
slick consultancy packaging. But some than to do it.”
corporate lingo stands for more than a But manufacturers that have gone
passing fad. “Lean manufacturing”, a beyond words to deeds and embraced
shorthand for a commitment to Lean and Six Sigma report tangible,
eliminating waste, simplifying sustained gains. “This is not a
procedures and speeding up program,” says Denny Van Zanten,
production, is one such concept. Six manufacturing vice president at Pella,
Sigma, the quality-assurance principles a major US window and door maker
that are often paired with lean efforts, that first adopted lean methods ten
is another. The principles and years ago and is still reaping the
techniques that the two terms returns. “Lean is a part of Pella’s
encompass have been shown to deliver culture.” Adds Stephen Printz, Pella’s
impressive bottom-line results in chief information officer: “Here, ‘lean’
industrial manufacturing. is a way of life.”
To be sure, the taint of best-seller Emerson Electric is another
management slogans lingers over Lean proponent. “Lean is clearly a significant
and Six Sigma, leading many strategy for us,” says Steve Hamby,
executives to dismiss the terms as Emerson’s vice president of IT shared
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The origins of “lean”
“Lean” was a Japanese invention, inspired by a plant tour of Ford Motors in the 1950s.
After watching an American assembly plant build cars in a more efficient way than
they used at home, two Japanese executives developed the Toyota Production System
(TPS). This approach propelled Toyota from a modest domestic firm to a global car giant.
Indeed, while much of the car industry has suffered from a lackluster economy, Toyota
saw its net income increase 23.2% in the half year to September 2003 from the same
period the previous year—on a revenue increase of 8%. “Today, even when everyone else
is struggling, Toyota continues to make money,” says Mr. Sharma.
Once TPS was well established within Toyota, the firm recognized that many potential
gains would go unrealized if its partners weren’t also involved. So in the 1970s Yoshiki
Iwata and other lean pioneers from Toyota created Shingijutsu, a consulting company
with the mission of bringing the TPS gospel to outside firms. As early as 1989,
Shingijutsu worked with Danaher’s Jacobs Equipment Company brake plant and helped
to establish it as the first facility in the US to go lean. TPS eventually came to widespread
notice in the US with the 1992 opening of a Toyota Supplier Support Center (TSSC) in
the US state of Kentucky.
In the years since TPS was developed, lean principles have expanded beyond Japanese
car making to other industries and around the globe. In Asia most multinationals are
already involved in lean programs, and “there is a big uptake among indigenous” local
manufacturers as well, says Brad Perkins, a senior director in discrete manufacturing
industries at Oracle in Singapore.
In the US carmakers have a lead, but other industries are waking up to the opportunity,
says Manish Modi, Oracle’s senior director of manufacturing applications development.
US manufacturing companies that had been firmly focused on other techniques such
as just-in-time manufacturing were quick to adopt and rapidly refine lean
manufacturing. Industry segments where margins are very thin, such as automotive and
industrials, lead the way.
Six Sigma is often paired with Lean principles in manufacturing efforts to ensure flawless
product quality and repeatable execution. It originated in the US in 1986, when Bill
Smith, a senior engineer and scientist at Motorola, devised a standardized way to count
defects. The name is inspired by the Greek letter sigma, used to denote standard
deviations in statistics. Six Sigma programs, employed by firms as diverse as GE, Allied
Signal and Tyco, use detailed data analysis to improve all business processes, with the
aim of achieving a defect rate no higher than 3.4 per million. Coupling Lean and Six
Sigma helps deliver value to customers in a repeatable manner.
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services. “It’s a concept, a strategy and Internal pilot programs are also
a philosophy. This thing is real.” persuasive. A few divisions of US
manufacturer Emerson Electric began
applying lean principles five or six
Learning lean lessons
years ago. “Following that, as senior
At the heart of lean manufacturing is management saw different results at
a focus on the reduction of inventory different locations, they began to raise
and lead times. Production is driven by Lean’s visibility” within Emerson, says
real customer orders, rather than Chris Stephen, director of systems
forecasts that anticipate market planning and ebusiness development.
demand. This means that demand “They appointed a vice president at the
“pulls” a product through production, corporate level with full-time
rather than management forecasts responsibility to put together several
“pushing” it onto the shop floor. Six plans and measurable results for Lean.”
Sigma, by contrast, is oriented to The impulse to adopt lean methods
improving product quality and can also come from business partners.
consistency by reducing the flaws that After years of working with Lean and
occur in manufacturing. Six Sigma principles, many companies
For many manufacturers, linking realize that, to continue improving,
Lean with Six Sigma is a perfect they need to get suppliers and even
marriage, providing the tools needed customers involved—such as happened
to meet real demand with high-quality with Toyota. “Companies get their
products in the shortest time possible. suppliers into Six Sigma,” says Georg
“They are really complementary Reindl, Oracle’s European director of
things,” says Bob Parker, research vice high-technology industry business. In
president at Boston’s AMR Research. Europe’s largest countries, he says,
“The whole is greater than the sum of manufacturers “are all working in this
the parts.” direction and using Lean.”
Lean and Six Sigma have gained a Once companies have adopted Lean
following where other management and Six Sigma principles, some benefits
cures have failed largely owing to word come quickly, others more slowly. But
of mouth and the demonstration effect the beauty of lean manufacturing is its
of industry success stories. “It starts focus on continuous improvement, and
with a CEO waking up in a cold sweat,” thus on a steady flow of benefits. The
says Mr. Parker. “Maybe they know most advanced users of the two
someone at GE and they’ve seen the techniques expand the concept well
amazing results.” beyond the manufacturing process, and
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apply them to every corporate activity, But lean veterans warn that
even communications and processes focusing solely on costs is short
involving suppliers. Here the focus is sighted. The savings come, to be sure,
on a “lean enterprise” rather than but an exclusive focus on cost
simply on “lean manufacturing.” reduction can leave a manufacturer
with unsustainable improvements.
Among the chief benefits are: “Companies that take a narrow
Cost efficiency. Many companies approach to Lean get some cost
initially look to lean methods as a improvements,” says AMR’s
means to reduce manufacturing costs. Mr. Parker—noting that some
Indeed, an Economist Intelligence Unit companies use Lean as an alibi for
survey of 83 manufacturing executives layoffs or to squeeze lower prices out
conducted in December 2003 showed of suppliers. “But the results are not
that 90% of respondents—the largest sustainable,” he warns.
group—saw reduced costs as a goal A healthier approach is to treat
of Lean/Six Sigma programs Lean as a stimulus to growth. “The key
(see Table 1). to Pella’s success is our people,” says
Mr. Van Zanten, noting that Pella’s
headcount has grown significantly
Table 1: Corporate goals for Lean/Six Sigma
(Multiple responses possible) since embracing Lean. Rather than
laying off factory staff as processes
Manufacturing costs reduction 90% have become more efficient, the firm
Improving productivity 87% has expanded its product line to
Removal of waste 79% include doors. In fact, companies that
Continuous improvement culture 74% have adopted the lean approach often
Customer satisfaction 69% find that their market share increases
Yield improvement 67% because quality and lead-time
Improved capacity utilization 62% improvements give them powerful
Reducing labor costs 59% competitive advantages.
Improving inventory performance 59% Inventory reduction. Carrying
Improved delivery performance 54% inventory costs a company in
Revenue enhancement 51% warehouse space, constrained capital
Reducing supplier costs 36% and potential handling damage.
Enhanced stock price 28% Excessive inventory also slows down
the manufacturing process and
Source: Economist Intelligence Unit survey, December 2003. becomes a drag on lead times while
reducing needed agility. Companies
4
The lingo of lean
A lot of lean vocabulary is derived from the Japanese language. You don’t need to use these
words to adopt lean methods, but knowing them can be helpful when working with
consultants and partners
Jidoka is a means of stopping production when flaws are detected. Sakichi Toyoda, the
founder of Toyota, fathered the notion when he invented an automatic loom in the early
1900s. The loom stopped when any thread broke, letting a single operator oversee
production on many looms at the same time.
Kanban is a card, sign or signal that triggers replenishment of a material when it is
required to continue the production process. Kanban control ensures that parts are not
made except in response to demand.
Kaizen means continuous improvement, or changing for the better. “Kai” means “to
change” and “zen” means “for the good.” So during a “Kaizen event,” a team scrutinizes
a manufacturer’s operations and then makes suggestions on how to improve them.
Poka-Yoke refers to a mistake-proofing procedure to prevent defects during order-
taking or manufacturing. It comes from “poka,” meaning “errors,” and “yoke,” the verb
“to avoid.”
The seven wastes are the most common wastes found in physical production,
catalogued by lean pioneer Taiichi Ohno, namely, overproduction ahead of demand,
waiting for the next processing step, unnecessary transport of materials, over-
processing of parts due to poor tool and product design, keeping inventories of more
than the absolute minimum, unnecessary movement by employees during work and
production of defective parts.
Takt, derived from the German “der Takt,” meaning “beat” or “pulse,” is the rate of
customer demand. A lean manufacturer’s goal is to be right on the takt time.
making smaller product batches are shop floor. “We had fantastic results,”
also more likely to spot and easily remembers Mr. Van Zanten, adding,
repair defects without disrupting “You can see the strong upward trend
production cycles. At Pella, as soon as in our sales growth.”
the window maker began lean Shorter cycle times. Through
manufacturing in 1993, manufacturing tireless elimination of waste in
costs dropped, inventory shrunk and production, dedicated lean
there was more available space on the practitioners such as Emerson, Pella,
5
Toyota and controls and tools maker A first challenge is to move beyond
Danaher are able to manufacture slogans to deeds, and actually
products more quickly. “The shorter implement lean principles. Only half
cycle times give you a lot more the companies that say they are
flexibility” to respond to market shifts, adopting Lean and Six Sigma principles
explains Mr. Parker. Customer orders are actually doing so, estimates Mr.
can enter the manufacturing process Sharma. A key test, he says, is to check
sooner, without having to wait for a the firm’s inventory turns. If a
planned lot, and materials progress manufacturer turns its inventory only
through the production process faster, six times a year, or once every two
without waiting in lengthy queues at months, the firm can hardly be called
each workstation. lean. Companies committed to lean
Greater flexibility. That flexibility is methods are more likely to have an
key in many industries today—from inventory turn of ten or higher. “To be
home appliances to large industrial responsive, you have to lower lead
equipment—where product lifecycles times,” Mr. Sharma adds.
are shrinking. “Global companies need Corporate inertia is another
to become real-time enterprises,” obstacle, particularly where shop-floor
notes Oracle’s Mr. Reindl. “If they don’t personnel cling to traditional notions
have lean processes in place, they learned early in their careers. It’s hard,
won’t be able to meet market for example, for the operator of an
demands.” Enhanced agility—the expensive machine to discard the
ability to respond almost immediately notion that idle machinery loses
to customer demands—is a key benefit money. After decades of getting the
of a lean approach. most production possible out of all
machinery, workers have a hard time
understanding how much a company
Challenges to lean efforts
loses when it produces products for
Programs that deliver continuous which there is no demand.
improvement also require continuous There are conceptual challenges for
effort, however, and companies should management as well. Managers need to
shed any illusion that reaping the understand that the old measures of
benefits of Lean/Six Sigma is easy. As success—efficiency and utilization—
with all change, achieving a have been supplanted by agility,
transformation to lean manufacturing increased inventory turns and reduced
takes hard work, inspired leadership cycle times, along with top quality. The
and indefatigable dedication. measures needed to effect this change
6
companies want to go down the lean
Table 2: Challenges in implementing Lean/Six Sigma path but they waver on the senior team
(Multiple responses possible)
commitment,” adds Pella’s Mr. Printz.
Company culture 48%
Lack of funds for staff training 44% Using technology
Lack of understanding of approach 34% to get lean
Investment/cost 31%
A final challenge comes in
Lack of access to management information 27%
employing technology to create a
Lack of understanding of benefits 27%
rapid and efficient flow of information
Lack of top management support 26%
between all the parties in a supply
Lack of technology 19%
chain. Such a seamless information
Nature of manufacturing facility 18%
flow is essential to reaping the benefits
Pressure to outsource 16%
of Lean/Six Sigma. IT allows lean
Multinational sites 6%
manufacturers to stay in sync with
suppliers, says Mr. Parker, while
Source: Economist Intelligence Unit survey, December 2003.
helping to tackle the unwieldy
challenges of modeling, calibrating,
in mindset can upset many long- operating and improving
standing processes, including manufacturing. “Technology can look
performance reviews and pay rates, and forward to tell you how to smooth
raise strong emotions. Indeed, half of production and optimize customer-
the respondents to the Economist service levels,” adds Mr. Sharma. IT
Intelligence Unit survey identified can also help with “what-ifs” in, for
company culture as a key challenge for example, reconfiguring a factory floor
Lean/Six Sigma, and 45% cited a lack or determining the optimal location
of resources for staff training as a for inventory.
stumbling block. Especially at large organizations,
The upheaval inherent in Lean/Six where so many departments, plants and
Sigma programs means that the subsidiaries need to operate together to
engagement of senior management is achieve a common goal, technology can
required for successful implementation. help to keep everyone moving in step
Adequate resources must be allocated with, for example, flow scheduling.
to train employees, and resolve is also “Information can help quicken and
necessary to push through sustain the adoption of Lean,” says
reorganization in production processes Manish Modi, Oracle’s senior director of
and inventory management. “A lot of manufacturing applications
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development. “Technology truly helps technology to achieve Lean/Six Sigma
you move to a make-to-demand model.” goals need to heed two guidelines:
A good technology backbone system First, an emphasis on simplicity
acts as a repository for customer and means that the adoption of lean
production data and provides the key methods does not necessarily entail
performance indicators that are used to higher IT spending. Emerson’s IT
measure success in both Lean and Six Shared Services department has been
Sigma initiatives. able, in fact, to use lean methods to
Corporate business systems need to reduce costly or unnecessary IT use.
be flexible enough to allow the data
Lean manufacturing aims to reduce
flow to map closely to business
transactions to a minimum, so it can
processes; otherwise, errors and
eliminate needless transactions that
inefficiencies can creep in. Flexibility is
raise reporting and labor costs—
also key to the “controlled
without adding value.
experiment,” a core Lean/Six Sigma
Second, it’s crucial that business
principle that calls for testing a variety
needs, rather than technology,
of possible outcomes to determine an
determine the actual map of
optimal solution. If information cannot
information flow. “You have physically
be captured accurately for such
scenarios, the results may be distorted to change your process first and then
or completely useless. Advanced bring in the technology to help,” says
technology systems now include Mr. Sharma. “You cannot depend on
multiple business process flows that technology alone. Using technology as
enable companies to run such tests. a panacea gets a lot of companies into
These “best practice” business flows trouble.” Pella’s Mr. Van Zanten
can inspire other companies to concurs. “Simplify the process first,” he
jumpstart their own process mapping. recommends, “and then technology is a
For all the pluses, companies using beautiful thing.”
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Ten tenets of lean manufacturing
If your company wants to get lean, what’s the best way to start?
Secure backing from the top
Before doing anything, get firm support from your company’s decision-makers. “If you
are not Lean and want to get started, the top management team has to understand what
they’re getting into,” says TBM’s Mr. Sharma. Adds Emerson’s Mr. Hamby: “You need a
top-down approach, rather than a grass-roots effort.”
Roll up your shirtsleeves
Lean can produce dramatic improvements. But no one said it would be easy. “Many
people are looking for a quick answer to a difficult problem,” says Mr. Sharma. “They
don’t hear that they’ll have to do some work first.”
Communicate and educate
“We spend a lot of time communicating before, during and at the end [of a Kaizan event,
when a team scrutinizes operations and then makes suggestions for improvements]
to make sure everyone understands,” says Pella’s Mr. Van Zanten. “Communication is
key. When we have a success, we really communicate it.” Adds Emerson’s Mr. Stephen:
“You need a lot of education. Build awareness, train people and get some champions.”
Don’t skimp on training
Lean manufacturing goes against the grain of many manufacturing traditions. “Leave
enough time to change the thinking within the company,” advises Mr. Parker. “Test and
make sure there is a level of understanding. If [the staff doesn’t] get it on the first round
of training, do another round. Make sure you have the culture turned around before
going forward.” Remember that Lean changes more than just production processes; it
can affect everything from personnel performance measures to how salespeople promise
delivery dates to customers.
Apply suitable metrics
Rejig how you measure success and failure. “Under the old cost-accounting system, your
score was good if your most expensive machine was running 24/7,” notes Mr. Parker.
Lean can’t succeed, he says, “if you don’t change the way people keep score.” The
traditional measures of success—efficiency and utilization—need to be replaced with
agility, lead time, inventory turns and quality across the board.
(Continued on page 10)
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Help your partners
“If you don’t extend Lean beyond your four walls, you will have dissatisfied suppliers,”
warns Oracle’s Mr. Modi. “Companies that are far reaching have educated their suppliers
on Lean.” In fact, the most successful lean companies involve their suppliers in product
design in order to improve quality and simplify manufacturing. And they work together
to improve communication methods and shorten lead times throughout the supply chain.
Think big
As a company shortens its production cycles, manufacturing experiments can be quick
and painless. So an attempt to improve things can hold tremendous potential, and
can be made without serious consequences—even if it fails. “When in doubt, be bold,”
advises Mr. Van Zanten. “We set aggressive goals. You can’t just make minor tweaks.”
Shift the goalposts
“Don’t declare victory too soon,” recommends Mr. Sharma. Pella’s Mr. Van Zanten likes
to remember how after a year of lean efforts, the CIO asked him for a progress report.
“About 25%,” Mr. Van Zanten estimated. A year later, the CIO asked the same question,
yet this time the response was 10%. The anecdote shows that lean manufacturing is like
getting a new pair of glasses that help you continually to see new ways in which to
reduce waste and improve business. “The more you do, the more opportunities there are
that become visible,” adds Pella’s Mr. Printz.
Get the faith
“Continuous improvement (Kaizen) is our way of life,” says industrial conglomerate
Danaher, which has been a lean manufacturer since the 1980s. Only with focus
and dedication can Lean/Six Sigma bring benefits to your company. “We are finding
that customers who have adopted lean as a religion are seeing bigger benefits,”
says Mr. Modi.
Prepare for the long haul
Lean doesn’t end after you reach your first set of goals, and it’s not a finite project
with a beginning and end date. Rather it’s a way of business life that executives need
to pursue continuously. “There’s a vigilance that has to be maintained from the
executive suite,” says Mr. Parker. “You’re always looking for a better way,” adds Robert
Azavedo, Oracle’s director of discrete manufacturing industries in Europe. “The journey
never ends.”
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Appendix
Survey results
Part I:
Survey respondent demographics Manufacturing industry subsector
Number of completed surveys: 84 Industrial products and
components 61%
Location of head office Durable goods 32%
Western Europe 43% Heavy equipment and
North America 30% machinery 7%
Asia-Pacific 12%
Middle East/Africa 7%
Latin America 5%
Eastern Europe 4%
Part II: Survey results
Company revenues in 2002
What is your perception
Less than $500 million 54%
of Lean/Six Sigma?
$500 million to $1 billion 8%
(Multiple responses permitted)
$1 billion to $5 billion 17%
$5 billion to $10 billion 10% Lean/Six Sigma is great in
More than $10 billion 12% principle but hard to achieve 35%
Lean/Six Sigma is a key
Job title competitive differentiator
CEO/COO/Chief executive/ in the marketplace 35%
Managing director 21% Lean/Six Sigma is similar to
CFO/Treasurer/Comptroller 11% Business Process Reengineering
CKO/CIO/Technology director 7% (BPR) 20%
VP/Director of marketing Lean/Six Sigma is an important goal
or sales 8% in the long term, but our near-term
VP/Director of manufacturing 6% focus is to improve profitability 19%
VP/Director of supply chain, Lean/Six Sigma is a realistic
planning or operations 4% objective in one to two years 18%
VP/Director of logistics I don’t understand the term 17%
or customer service 2% Lean/Six Sigma is an empty slogan 8%
Research manager 2% Other 5%
IT manager 2%
Other manager 19%
Other 17 (Continues on page 12)
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Appendix
(Part II: Survey results from page 11) What are your company’s goals
for Lean/Six Sigma?
Is your company enacting a formal
(Multiple responses permitted)
Lean/Six Sigma program?
Manufacturing costs reduction 90%
No, we have no formal program 42%
Improving productivity 87%
Yes, we have a formal and
Removal of waste 79%
structured program 23%
Continuous improvement culture 74%
No, but we have a program in
Customer satisfaction 69%
the planning stages 15%
Yield improvement 67%
No, but we are enacting
Improved capacity utilization 62%
similar initiatives under a
Reducing labor costs 59%
different name 20%
Improving inventory performance 59%
Improved delivery performance 54%
If you have a Lean/Six Sigma program,
Revenue enhancement 51%
how long has it been in operation?
Reducing supplier costs 36%
Less than a year 29%
Enhanced stock price 28%
One to five years 63%
Five to ten years 8%
What metrics does your company use to
More than ten years 0%
assess the success of Lean/Six Sigma?
(Multiple responses permitted)
How extensively is your Lean/Six
Annual productivity
Sigma program deployed?
(sales per employee) 54%
Only sporadically 14%
Annual profitability 54%
At a process level 30%
On-time delivery (OTD)
At a function level 24%
performance to promised date 51%
Enterprise-wide 27%
Annual inventory turnover 38%
Across the extended supply chain 5%
Annual sales 33%
Other 31%
How extensively are Kaizen
(continuous improvement) projects
and events structured, planned and
implemented?
Only sporadically 28%
At a process level 18%
At a function level 28%
Enterprise-wide 21%
Across the extended supply chain 5% (Continues on page 13)
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Appendix
(Part II: Survey results from page 12) What have been the major challenges
to implementing a Lean/Six Sigma
What metrics does your company program?
use to assess the success of (Three responses permitted)
Lean/Six Sigma? Company culture 48%
(Multiple responses permitted) Lack of funds for staff training 44%
Annual productivity Lack of understanding
(sales per employee) 54% of approach 34%
Annual profitability 54% Investment/cost 31%
On-time delivery (OTD) Lack of access to management
performance to promised date 51% information 27%
Annual inventory turnover 38% Lack of understanding of benefits 27%
Annual sales 33% Lack of top management support 26%
Other 31% Lack of technology 19%
Nature of manufacturing facility 18%
In what areas does your company Pressure to outsource 16%
plan to launch Lean/Six Sigma Multinational sites 6%
initiatives in the future?
(Multiple responses permitted)
Manufacturing 60%
Distribution and logistics 57%
Sourcing 45%
Finance and other back-office
functions 36%
Product development 26%
Information systems 30%
Human resources 28%
Corporate communications
and advertising 15%
Other 2%
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